Traditionalists win out at divided M&G

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LAST MONDAY, after months of negotiations, Tony Shearer, the chief operating officer of M&G, was ousted from Britain's top manager of unit trusts and personal savings plans. The company said only that personality conflicts with the managing director, David Morgan, were behind the change.

The battle for the heart and soul of M&G revealed some of the deep fault lines dividing the near pounds 1bn quoted company, which has figured in bid speculation sweeping the sector.

On the day that Mr Shearer left, M&G's business development director, Alan Oddie, also got the chop. Both men had modern ideas about management. And both had worked in the money-spinning retail side of the business.

More significantly, perhaps, both were potential candidates for managing director. Mr Morgan, 62, said afterwards that he planned to stay for some time and the recent events showed he had the backing of the board. The question is whether he will have the backing of his retail sales force.

M&G has always been a house divided. Most City fund managers rely on large blocks of pension and insurance money, but more than three quarters of the pounds 13bn handled by M&G comes from private investors. The salesmen who bring in that money typically have GCSEs but no post-secondary education and little chance of promotion.

On the other side of the house are investment managers, many of whom went to the right schools and universities. As well as deciding where to put the funds' cash, they handle institutional investors. Promoted to the top, they send down edicts to a retail sales force of which they have no experience. "There's lots of friction," said one insider. "The sales team are treated like second-class citizens."

Mr Shearer was trying to change that. Three years ago, he set about encouraging the retail staff to create new ways of operating that would keep them competitive with rival firms.

Mr Morgan, steeped in tradition, preferred the top-down approach. In particular, he was eager to cut costs. M&G has seen its pre-tax profits rise 50 per cent to pounds 61m in the last four years. But the rise in funds under management, which almost doubled since 1992, was due more to lower front-end charges than the investment performance of its 30 funds. Stock market conditions have not favoured its investment approach, it admitted in its 1995 annual report.

M&G's investment strategy, which focuses on high yield, recovery and smaller company stocks but not blue chips, could begin to pay off again. But even if the investment staff's reputation recovers its sheen, profits growth will continue to depend on its retail sales. Mr Morgan's challenge will now be to win over the people whose champion he has just cast out.